The Legalization Research On Local Government Debt Management And Risk Prevention

In accordance with the provisions of the "Budget Law" and "Guarantee Law",China’s local governments do not have the legal right to issue bonds. For the localgovernments of most of the countries in the world who have the power to issue localbonds, the right which would have been given to local governments to issue localbonds did not get approved by the law, in the most recent revision of the “BudgetLaw".In the case that the law disallows the local governments’ issuing bonds, China’slocal governments debt-financed through various forms, and ultimately formed thelarge-scale local government debt. According to the audit report of the AuditingAdministration, currently China’s local governments’ debt has exceeded the level ofChina’s economic tolerance. If left unresolved by not taking timely and necessarymeasures, it would seem most likely to lead to debt risk and crisis, ultimately.Therefore, it is of great significance to understand the characteristics and causes ofChina’s local governments’ debt, and put forward a viable strategy for localconditions.This paper adopts a combination of strategies like comprehensive analysis,comparative analysis and normative analysis, and analyzes the status quo, risk, andcause of China’s local governments’ debt. And on the basis of general experiencelearning from foreign local government debt management, it puts forward recommendations for our local governments’ debt management and risk prevention.The analysis and recommendations expand from a legal point of view, focusing on theempowerment of local government to issue local bonds, and the inclusion of localgovernment debt management into the legalized track.The paper is divided into six chapters, as follows:The first chapter is an introduction, which aims to describe the basic content andmeaning of this study, and describe the status quo of the researches at home andabroad.The second chapter is a generalization of Chinese local government’s debtmanagement status quo, which conducts a comprehensive analysis and summary ofChinese local government’s current debt management and interprets in details on debtmanagement scale, constituents and characteristics, the conclusion drawn from whichon local government debt management includes mainly four parts, non-standardmanagement, lacking lawful management consciousness, flawed management systemand a lot of risks involved in debts.The third chapter is the analysis of the reasons accounting for Chinese localgovernment debt risks, which begins by analyzing the internal and external risks,followed by a conclusion on the negative impacts brought by local government debtsand concluded by finalizing the mainly four reasons for debt risks: unsound laws andregulations, local governments’ own management problems, institutional factors andsome relevant influential policies.The fourth chapter aims to mainly introduce some good foreign local governmentdebt management practices and experience, involves a comprehensive introduction inthree countries like America, Japan and Brazil. The main motive for introducingforeign debt management practice lies in obtaining some great inspiration for Chineselocal government debt management in respects like identifying local governmentcreditor’s rights, lawfully standardize fiscal relationship within governments, enhancelocal government debt information transparency and establish a complete and reliablestandardization system of guarantee deposit and legalize supervision measures.The fifth chapter is a necessity and feasibility analysis of Chinese local government issuing public debt. Chinese local governments have not yet beenempowered to issue local public debt though it’s an inevitable move to furthereconomic development. The author holds that avoiding local government debt riskslies mainly in empowering the local government to issue public debt. Therefore, thispassage would conduct an in-depth interpretation on the public debt issuing feasibilityand necessity so as to dissolve those misunderstandings and put in place thelegislation to empower local government to issue local public debt.The sixth chapter is focused on the research of local government debtmanagement and risk prevention legislation. Building on the fact that reasonsaccounting for local government debt and risks are way too complicated, this passagewould propose two ideas to solve local government debt management problems, onebeing short-term and the other being long-term. In the short term, the priority tasks ismainly involved on perfecting fiscal system and comprehensively clear up localgovernment investment and financing platform. In the long term, the main efforts arefocused on local government functions transformation,<<Budget Law>> amendment,<<Administrative Law on Local Government Investment and Financing Platform>>and <<Local Government Public Debt Law>>, etc.